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Student loan deferment program restored -- for now

Qualifying residents get a year's reprieve while final rules are developed to determine the program's future.

By Damon Adams , Myrle Croasdale — Posted Dec. 3, 2007

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An economic hardship student loan deferment program that medical school graduates use as they go through residency will remain in place until fall of 2008, and more students are eligible to participate.

The U.S. Dept. of Education announced Nov. 1 that it will temporarily reinstate the program, with a final decision on its fate due next year.

The news means that eligible medical school graduates and current residents will not have to start repaying loans immediately and may continue to defer paying back medical school debt without accruing any extra interest at least until fall 2008.

In its November announcement, the department also made the program available to a larger number of medical residents. To qualify under the old plan, the typical first-year resident making about $45,000 needed to have a debt of at least $106,000, said the Assn. of American Medical Colleges. Under the new requirements, a resident with the same salary qualifies with a debt of $80,100, the AAMC said.

Roughly two-thirds of first-year residents qualified for economic hardship loan deferments under the old requirements, the AAMC said. At press time in mid-November, it had yet to calculate how many more residents would qualify under the new formula.

Policy watchers said lowering the eligibility requirements fell within the Dept. of Education's rule-making authority and speculated that pressure from the medical community contributed to the change.

The American Medical Association, which has been lobbying to protect and expand medical students' loan repayment options, welcomed the move. "For now, the crisis is averted," said AMA Trustee Samantha L. Rosman, MD.

Organized medicine is now turning its focus to the program's ultimate fate.

At its Interim Meeting in Honolulu Nov. 10-13, the AMA House of Delegates adopted a policy that the AMA work to reinstate the economic hardship deferment. The policy also said the Association supports alternate mechanisms that better address financial needs of postgraduate trainees with educational debt.

The AMA, the American Osteopathic Assn. and other organizations lobbying to preserve the program say many residents can't afford even small loan repayments. The AMA is supporting a new Senate bill that would restore student loan deferment, said AMA Trustee Chris DeRienzo, a fourth-year medical student at Duke University School of Medicine in Durham, N.C.

Without a permanent fix, young physicians may be reluctant to go into primary care or practice in underserved areas, Dr. Rosman said.

"It will discourage students from going into medicine, and that will hurt access to care," she said.

Left with no options

The deferment program was eliminated Oct. 1, just days after President Bush signed the College Cost Reduction and Access Act.

The program allowed qualifying residents to delay making loan repayments for three years without accruing interest. Without it, many residents would need to start paying back their loans or go into forbearance, an option that allows them to delay making repayments, but interest accrues on their debt.

The AMA and others argued that changing the rules left many residents in financial hardship.

The College Cost Reduction and Access Act created an income-based repayment plan to replace the deferment program, but it is not slated to start until July 1, 2009. That left a 21-month gap without any program aimed at helping residents with large debts and small incomes. The Dept. of Education may resolve the lack of overlap between the two programs in its final rule or permanently reinstate deferment, experts said.

During the AMA Interim Meeting, medical students and residents called congressional leaders and urged them to reinstate the loan deferment program. Diana Shiba, MD, an AMA delegate and an ophthalmology resident in San Diego, was among those making calls.

"It was really inspiring to see the residents and fellows come together like that," said Dr. Shiba, who is deferring loans. "We can't afford to make these payments" without the program.

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